Dow Jones Futures: Debt-Ceiling Talks Resume; Nvidia Earnings Key For Market Rally

Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. Nvidia earnings loom large this coming week, with debt-ceiling talks restarting Friday night after pausing hours earlier.

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The stock market rally strengthened this past week on debt-ceiling deal optimism and easing bank fears, with gains led by AI-infused tech leaders such as Nvidia (NVDA), Advanced Micro Devices (AMD), ServiceNow (NOW), Google parent Alphabet (GOOGL), Snowflake (SNOW) and Palantir Technologies (PLTR).

The Nasdaq composite and S&P 500 hit 2023 highs, with the Nasdaq 100 setting its best levels in more than a year. The White House and congressional leaders appeared to be moving toward a debt-ceiling deal while concerns about regional banks waned.

On Friday, GOP negotiators suspended debt-ceiling talks, saying President Biden’s White House was being unreasonable. At around the same time, a report came out stating that Treasury Secretary Janet Yellen told bank execs that more bank mergers may be needed. That hit regional bank stocks Friday, though they rose strongly for the week.

The major indexes took the debt-ceiling setback and Yellen’s comments in stride Friday, partly because around the same time Fed chief Jerome Powell signaled he favors a rate pause next month.

Investors also remain confident in a debt-limit deal. Indeed, House Speaker Kevin McCarthy said Friday evening that debt-ceiling negotiations would resume later that night.

The stock market rally remains somewhat split, with narrow leadership. Still, investors can be adding exposure carefully, though not a lot of stocks are offering buying opportunities at the moment.

Tesla (TSLA) made a bullish move this past week amid its shareholder event, clearing some key levels. But TSLA stock faces further resistance.

Nvidia Earnings

Nvidia earnings Wednesday night will be a big deal for the market rally. NVDA stock is everything that’s going right with the market. It’s the leading megacap and AI stock in a market rally dominated by megacaps and AI plays. Nvidia shares leapt 10% last week and it’s significantly extended.

Nvidia stock pausing or pulling back modestly over several weeks would be healthy. But if Nvidia earnings or guidance disappoint, NVDA could be punished severely. That would have repercussions for rival AMD but also Google and a slew of “AI” plays that have been driving the market higher.

ServiceNow stock took off last week amid AI-related alliances with Nvidia and Microsoft (MSFT). SNOW stock gained on a report that it could buy an AI search firm. PLTR stock, long an AI play, vaulted 23% for the week after the prior week’s 28% spike on earnings. Google stock has leapt 14% so far in May.

Other Key Earnings

Snowflake, Elf Beauty (ELF), Palo Alto Networks (PANW) and Deckers Outdoor (DECK) also are notable companies with earnings this coming week.

SNOW stock is in a 10-month consolidation. ELF stock is consolidating at its 21-day line after a huge run. PANW stock is trying to hold its 50-day line within a new, volatile flat base. DECK stock had been a big winner but tumbled this past week below its 50-day line as On Holding (ONON) and Foot Locker (FL) dived on their results.

Nvidia stock is on IBD Leaderboard, with ELF stock on the Leaderboard watchlist. SNOW stock is on the IBD 50. NOW stock is on the IBD Big Cap 20.

The video embedded in the article discussed the weekly market action and reviewed three non-AI plays setting up: Life Time Group (LTH), Meritage Homes (MTH) and MercadoLibre (MELI).

Dow Jones Futures Today

Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally

The stock market rally advanced last week, with a big gap between leaders and laggards.

The Dow Jones Industrial Average climbed 0.4% in last week’s stock market trading. The S&P 500 index advanced 1.65%. The Nasdaq composite jumped 3%. The small-cap Russell 2000 bounced 1.9%.

The 10-year Treasury yield leapt 23 basis points to 3.69% this past week, hitting a two-month high.

The odds of a Fed rate hike next month briefly topped 40% during the week amid strong economic data and some hawkish comments from Fed officials. But with Powell saying “we can afford to look at the data,” the chance slipped back to about 20% on Friday.

U.S. crude oil futures climbed 2.2% to $71.55 a barrel for the week.

ETFs

Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) surged 5.25%. NOW stock is a big IGV component. The VanEck Vectors Semiconductor ETF (SMH) soared 8.5%. Nvidia stock is a major SMH holding, along with AMD stock. Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 2.7% last week and ARK Genomics ETF (ARKG) gained 3%. Tesla stock is the No. 1 holding across Ark Invest ETFs. Cathie Wood’s Ark also owns some PLTR stock.

SPDR S&P Metals & Mining ETF (XME) slipped 0.5%, its fifth straight weekly loss. U.S. Global Jets ETF (JETS) ascended 4.1%. SPDR S&P Homebuilders ETF (XHB) stepped up 1.2%. The Energy Select SPDR ETF (XLE) gained 1.4%. The Health Care Select Sector SPDR Fund (XLV) slipped 0.7%.

The Financial Select SPDR ETF (XLF) rose 2.2% The SPDR S&P Regional Banking ETF (KRE) rebounded 7.8%, even with Friday’s 1.8% retreat.

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Tesla Stock A Buy?

Tesla stock rallied 7.2% last week to 180.14, rebounding from near the 21-day line and retaking the 50-day line for the first time since early April.

Investors responded well to Tuesday’s Tesla shareholder day. CEO Elon Musk reiterated that the Cybertruck will begin deliveries this year, while again hinting at a next-generation vehicle. Musk also said Tesla will “try” some advertising. Like any savvy CEO in 2023, he made sure to mention “AI” several times.

Meanwhile, Tesla quietly offered some new inventory discounts on U.S. Model 3 vehicles, following recent discounts on Model 3 and Y vehicles in Europe. Inventory discounts don’t get the headlines that official price cuts do, but they hit profit margins all the same. The balance between production, deliveries and prices is the key Tesla story in 2023.

Investors could view Friday’s move above the 50-day moving average as an early entry for Tesla stock. But it would be extremely aggressive. Tesla still faces the 200-day line, which is coming down toward 200. Just above that is a 207.89 buy point, just above the March 31 high. That’s either from a seven-week consolidation or a three-month double-bottom buy point.

Tesla Vs. BYD: EV Giants Vie For Crown, But Which Is The Better Buy?

Market Rally Analysis

The stock market rally showed strength last week, but the advance remains narrow. The Nasdaq boomed, hitting a 2023 high, with the S&P 500 also doing so late in the week.

The Russell 2000, buoyed by bank stocks, also had a solid week, but is well off 2023 highs. The Dow Jones eked out a small weekly gain after undercutting its 50-day line on Tuesday.

The tech rally has expanded from megacap stocks such as Google and Nvidia to big-cap chip and software names such as AMD, ServiceNow and AI plays such as Palantir. But most are extended now.

The Nasdaq 100 hit a 52-week high, up 3.5% for the week. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW), which had been struggling, popped 2.45%. It’s close to 2023 highs.

But overall breadth remains lackluster at best. The Invesco S&P 500 Equal Weight ETF (RSP) climbed nearly 1%, but slipped back below its 200-day line on Friday. RSP isn’t much closer to its 2023 highs than its October bear market lows.

Losers led advancers on Friday after modestly positive breadth on Thursday. But new highs outpaced losers for a second straight session.

Beyond chips, software and megacap stocks, homebuilders, building materials, medical products and biopharma names are acting well. So are travel plays and some payment stocks.

Shoe-related stocks were heels this past week due to ONON and Foot Locker. Deckers Outdoor, as well as Dick’s Sporting Goods (DKS), will try to put their best foot forward.

Debt-ceiling talks, banking concerns and recession risks remain big issues for the market rally. While Wall Street and political analysts still see a debt-limit deal as highly likely, various headlines could swing markets up and down over the next several days.

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What To Do Now

The stock market rally is trending higher, but leadership is narrow and market breadth suspect. Many of the leading stocks are extended.

Investors who took advantage of techs clearing buy signals in the past week or so generally have been rewarded, some hugely. But overall exposure should remain modest. Consider taking partial profits on big winners. Definitely have a game plan in place.

A healthy number of stocks are setting up from a variety of sectors, and could get going if the market rally broadens out. So you’ll want to be ready.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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